Shares in
PG&E Corp.
PCG -5.81%
fell nearly 22% and its bonds were also hammered, capping five straight days of losses that have dragged shares down more than 47%, its worst such stretch on record.

The free fall began after the company reported to state regulators that one of its transmission lines had malfunctioned before the start of a massive fire in Northern California. The fire has now destroyed more than 7,600 single-family homes and killed at least 48 people.

The San Francisco-based company reported in a securities filing Tuesday night that it had exhausted its revolving lines of credit and warned that its $1.4 billion of insurance coverage for wildfires occurring between Aug. 1 and July 31, 2019, may be insufficient to cover all potential liability claims against the company.

In Paradise, Calif., investigators combed through neighborhoods reduced to ash, searching for human remains after the Camp Fire wildfire swept through the town. Photo: Erin Ailworth

Geisha Williams, PG&E’s chief executive, said in an interview that it was premature to speculate about whether the company would need to seek bankruptcy protection. She said the company tapped its credit lines to create more financial flexibility.

“The cause of the fire has not been determined, so it’s not clear if we’re going to be held responsible,” Ms. Williams said, adding that it is currently focused on assisting communities and first responders.

State investigators have yet to determine whether PG&E equipment caused any current wildfires, or whether the company was negligent, findings that could trigger state fines as well as fuel lawsuits from homeowners and others who lost property.

But the utility, already facing billions in potential liability costs from last year’s wildfires, is confronting a sobering situation without any easy fixes, as an extended drought and population growth into fire-prone forested areas turns parts of California into a dangerous tinderbox.

PG&E’s Pacific Gas & Electric Co. unit serves about 16 million people from Santa Barbara almost all the way up to the Oregon border. The company owns and operates hundreds of miles of electrical wires that crisscross an increasingly dry region at rising risk of fire, a new reality that California Gov. Jerry Brown has attributed in part to a changing climate. State investigators have already concluded PG&E equipment helped spark at least 16 fires last year, generating hundreds of lawsuits.

The company was worth more than $36 billion in September 2017, before the recent spate of fires in Northern California. It closed on Wednesday worth $13.27 billion. PG&E cut its dividend and took a $2.5 billion charge earlier this year.

“The reality is that fire season is year round and fires are spreading at rates we’ve never seen before,” said Ms. Williams, PG&E’s CEO. “We must work together across all sectors and disciplines to address this issue with urgency.”

Citi analyst Praful Mehta estimated the total damage caused by the current fire could reach $15 billion, comparable to the 2017 fire damages, though PG&E wouldn’t necessarily bear those costs in full if found liable for the blaze.

Mr. Mehta said those potential liability costs could raise the risk of bankruptcy for PG&E, which could force the California Legislature to consider rescuing the company.

“All roads lead to Sacramento,” he said. “There is no way they could face all of those liabilities without a legislative solution.”

PG&E has already sought help from the state. Earlier this year, it successfully pushed for legislation that would allow it to pass on wildfire-liability costs to its customers under certain circumstances. But the bill takes effect in January, leaving the company currently unprotected from liability claims arising from the current blaze in Northern California, known as the Camp Fire.

Another fire, known as the Woolsey Fire, was burning to the south in parts of Los Angeles and Ventura County that aren’t within PG&E’s coverage area.

The liabilities could be enormous. Lawyers who sued PG&E following devastating fires in 2015 and 2017 are already mobilizing to sue the company for the Camp Fire.

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A coalition of law firms calling itself Northern California Fire Lawyers filed a negligence lawsuit Tuesday on behalf of more than a dozen residents affected by the blaze, alleging PG&E failed to properly maintain its equipment. The lawsuit details what the lawyers call a “regular pattern of placing its own profits before the safety of the California residents it serves.”

Following the 2017 fires, individuals, municipalities and insurance companies filed more than 800 civil lawsuits against PG&E. The first trial in those cases is slated to take place next September.

Britt Strottman, a lawyer with Baron & Budd who has successfully sued PG&E over previous fires and a natural-gas explosion, said the company had neglected safety considerations, creating the current situation.

“They continue to have a culture where they neglect the maintenance of their system and divert money that should be used for safety to executive bonuses,” she said.

PG&E spokeswoman Lynsey Paulo strongly disagreed. “Nothing is more important to PG&E than the safety of our customers, our communities, our employees and our contractors,” she said.

It could take years to sort out fines and liabilities, according to Height Capital Markets. It estimated that state fire investigators wouldn’t formally determine the cause of the current fire, including PG&E’s role, until next summer, and that settlements on claims could take until 2020 at the earliest.

PG&E expressed concern last week about the potential for more wildfires, fueled by the state’s Santa Ana winds. It notified about 70,000 customers that it might turn off their power as a safety measure. Strong winds can blow electrical lines into trees or into each other, generating electrical arcs that can drop sparks and molten material onto dry vegetation. The company ultimately decided there wasn’t enough risk to warrant shutting off the power.

At 6:15 a.m. on Nov. 8, PG&E detected an outage on a high-voltage transmission line that connects a century-old dam in the Sierra Nevada mountains to the rest of the state’s power grid. The problem on the line occurred near Pulga in Northern California. Fifteen minutes later, a wildfire was reported in that vicinity. Whipped by high winds, the fire grew quickly into the deadliest in California history.